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As an NRI, do you know that planning long visits to India every year can affect your residential status? Find out how long you need to stay outside India every year to retain your NRI status.
Though they may live and earn abroad, non-resident Indians have strong familial and cultural ties in India and, as a result, like to spend a lot of time here.
But it is important to remember that your NRI status is largely determined by the number of days you are physically present in India during every financial year and you may lose that by exceeding your stay back home.
An NRI is essentially a person of Indian origin or Indian citizen who has gone out of India or who stays outside India for the purpose of employment, or for carrying on business or vocation outside India, or for any other purpose indicating his intention to stay outside India for an uncertain period.
But it does not simply end there. The NRI status of a person mainly depends on his period of stay in India. The Income Tax Act 1961 does not directly define an NRI, but the Section 6 contains detailed criteria of who is considered as a resident of India. Therefore, anybody who does not meet that criteria can be called an NRI.
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Till March 31, 2020, under the Income Tax Act, 1961, an individual was treated as a resident of India in any financial year if he/she was in India for:
So, deriving from that, an NRI is one who is:
But the Finance Bill 2020 passed by the Parliament in March 2020 made a slight but important change to these rules with effect from April 1, 2020. According to the new rules, the period of ‘182 days’ has been reduced to ‘120 days’ for those NRIs whose income accruing or arising in India is more than Rs 15 lakh during that fiscal year.
Hence, if you are an NRI whose total taxable income from India is more than Rs 15 lakh, you should not stay for more than 119 days in India in a fiscal year to protect your NRI status.
But if your total taxable income in India is less than Rs 15 lakh during any financial year, your stay can go till 181 days, as was the case earlier.
The period of stay in India is counted in number of days for each financial year beginning from April 1 till March 31. So, keep record of your stay in India between these dates.
According to the new rules, if an NRI (with taxable income in India of over Rs 15 lakh) stays in India for 120 days or more during any financial year, and his/her cumulative stay in the country in the preceding 4 years is also 365 days or more, then he/she would be treated as a resident of India.
If you are planning to return to India permanently, you may lose the NRI status in the same year of return but can continue to enjoy tax breaks for a few more years as a resident but not ordinarily resident (RNOR).
An ordinary resident in India is taxed on income earned in the country as well as abroad. However, RNORs are taxed only to the extent of income earned in India and are not liable for taxation on income earned abroad. Hence, your foreign income won’t be taxed in India as long as you are an RNOR.
If you are returning to India, you will be called an RNOR if:
While planning your visit to your home country, you should plan the number of days you wish to stay and your taxable income accruing from India to protect your NRI status. Keep spare days for emergency and unexpected visits to India.
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*Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners.
The purpose of this blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.